Question

T y315 [LU3, 104] Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Activity Rates $2 per direct labour-hour $20 per order $86 per customer Management would like an analysis of the profitability of a particular customer. Cell City, which has ordered the following products over the last 12 months: Standard Model $ 200 Deluxe Model $ 60 2. 5 A 0.25 0.46 A Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case ta ta ta ta A A The company's direct labour rate is $20 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City. Sales Costs Score answer > Direct materials 1 of 1

Answer 1

Solution:

Computation of Customer Margin of Cell City
Sales:
Standard ($200*40)	$8,000
Deluxe ($60*60)	$3,600
Total Sales		$11,600
Less: Costs:
Direct Material Cost
Standard (200*$17)	$3,400
Deluxe (60*$20)	$1,200
		$4,600
Direct Labor cost
Standard (200*0.25*20)	$1,000
Deluxe (60*0.40*$20)	$480
		$1,480
Suppoting manufacturing
Standard (200*0.25*2)	$100
Deluxe (60*0.40*$2)	$48
		$148
Order processing
Standard (5*$20)	$100
Deluxe (2*$20)	$40
		$140
Customer service		$86
Total Costs		$6,454
Customer Margin		$5,146